Explanation

Goodwill is taken into account in partnership business when a new partner is admitted. Goodwill represents the value of the business’s reputation, customer loyalty, location, and other intangible benefits built up over time.

When a new partner joins, they are essentially buying into an established business. The existing partners have built up goodwill that the new partner will benefit from. Therefore, the new partner must compensate the old partners for this value.

Goodwill is also considered when a partner retires or dies, or when profit-sharing ratios change. In each case, the partners gaining benefit must compensate those losing out.

Simply making huge profits or having good customer relations does not trigger goodwill accounting entries. These contribute to goodwill value but are not events requiring accounting treatment. While goodwill might be considered during dissolution, the primary trigger mentioned in accounting is admission of new partners.